The internal consistency of the standard gamble: tests after adjusting for prospect theory.
Journal of health economics, 22
This article reports a study that tests whether the internal consistency of the standard gamble can be improved upon by incorporating loss weighting and probability transformation parameters in the standard gamble valuation procedure. Five alternatives to the standard EU formulation are considered: (1) probability transformation within an EU framework; and, within a prospect theory framework, (2) loss weighting and full probability transformation, (3) no loss weighting and full probability transformation, (4) loss weighting and no probability transformation, and (5) loss weighting and partial probability transformation. Of the five alternatives, only the prospect theory formulation with loss weighting and no probability transformation offers an improvement in internal consistency over the standard EU valuation procedure.
||Published 2003 © Elsevier. LSE has developed LSE Research Online so that users may access research output of the School. Copyright © and Moral Rights for the papers on this site are retained by the individual authors and/or other copyright owners. Users may download and/or print one copy of any article(s) in LSE Research Online to facilitate their private study or for non-commercial research. You may not engage in further distribution of the material or use it for any profit-making activities or any commercial gain. You may freely distribute the URL (http://eprints.lse.ac.uk) of the LSE Research Online website.
||Standard gamble, Expected utility theory, Prospect theory, Loss aversion, Probability transformation. JEL classification codes: C90, D81, I10
|Library of Congress subject classification:
||H Social Sciences > HB Economic Theory
||Collections > Economists Online
||30 Jun 2006
Actions (login required)
||Record administration - authorised staff only